(Correction: Under the Pfizer heading, corrects to say that AbbVie sells Humira.)
As the saying goes, it pays to be greedy when others are fearful. And right now, there’s certainly no shortage of fear on Wall Street.
We’ve seen a nearly 9% decline in the S&P 500 Index
from Jan. 1 through Monday’s close. The Nasdaq’s
drop is more than twice as bad.
However, there are a few dominant stocks with entrenched, multinational brands and solid balance sheets that have been dumped amid the panic of 2022.
They may not bounce back immediately, and there may still be downward pressure in the coming weeks as Wall Street stays “risk off.” But for bold investors willing to think longer-term and make some tactical bets, here are 10 solid stocks that are down significantly but likely won’t stay that way for long.
T. Rowe Price, down 26% this year
T. Rowe Price Group, Inc.
is among the top 10 publicly traded money managers in the world as measured by size. It’s a $33 billion powerhouse with about $1.5 trillion in assets under management at the end of last year, and has a powerful brand backed by nearly 90 years of operation. Volatility has taken its toll on TROW stock in the short term, but this financial firm is a “dividend aristocrat” with 35 straight years of consecutive dividend increases and a long-term commitment to shareholders. After a strong fourth-quarter report that showed an otherwise thriving business, there’s reason to have faith TROW can weather this downturn and snap back.
Home Depot, -23%
The largest U.S. home-improvement chain, Home Depot Inc.
operates 2,300 retail stores across North America — 300 more than competitor Lowe’s Cos.
With a red-hot housing market, there is continued demand for many HD products and services, and the realities of building materials mean that the chain is far less likely to suffer any digital disruption from online competitors shipping lumber or wallboard via mail. Home Depot just boosted its dividend to $1.90 per quarter, up more than 15% from $1.65 in 2021, and more than double the 89 cents per share it was paying as recently as 2017. Shares may have taken a hit in 2022, but this is a stock with staying power.
Though some investors may still think of Tesla Inc.
as an electric-car start-up, that is just not the case anymore. As proof, consider that in 2021 TSLA sold more units in the U.S. than BMW. Also consider it is one of the top seven U.S. stocks as measured by market capitalization, that it’s projecting a staggering 50% revenue growth rate in fiscal 2022 and that its powerful brand has made it the poster child for the EV megatrend worldwide. It’s hard to bet against the growth behind electric vehicle markets, so unless you think competitors are going to instantly scale up and eat into market share anytime soon, this may be a chance to buy TSLA stock on a pullback.
Dominant coffee chain Starbucks Corp.
remains one of the strongest consumer discretionary plays out there, with its $29 billion in annual revenue in 2021 significantly topping $23 billion and change recorded by McDonald’s Corp.
last year. Furthermore, while chains like Mickey D’s are struggling to grow SBUX is still expanding with projected 13% revenue expansion in fiscal 2022 and another 9% projected in fiscal 2023. Throw in a 2.1% dividend that is only about 25% of total profits and a powerful brand with staying power, and it’s hard to bet against this coffee king in the long term.
For many months now, investors have known that earnings comparisons will get harder for Covid-19 vaccine producer Pfizer Inc.
and that sentiment may suffer, thanks to the old “buy the rumor, sell the news” mentality. But it’s worth remembering that Pfizer is so much more than a pandemic play. This is an iconic drugmaker born way back in 1849, with blockbuster cardiovascular treatment Eliquis on the market and an anti-inflammatory drug similar to AbbVie’s
Humira expected to get approval as early as the fourth quarter. And in addition to its internal R&D, it made a big acquisition last year with the $6.7 billion purchase of Arena Pharmaceuticals to keep its product pipeline flowing. Sure, PFE stock may have become a crowded trade as Wall Street began to look beyond Covid. But that doesn’t mean it’s going away anytime soon.
The biggest brand in sporting goods and athletic apparel on the planet, Nike Inc.
is a $215 billion powerhouse that isn’t going to be disrupted by any short-term volatility in the market. Yes, inflation may cause some pressure on margins or consumer confidence. But not only will Nike remain the go-to name in its category, it continues to move beyond the old-school wholesale model and take its products direct to consumers. Case in point, in fiscal 2021 direct sales rose to about 39% of sales — meaning it’s cutting out the middle man to capture more margins. Between a great brand and this increasingly direct sales model, it’s hard to imagine Nike staying on its heels for long.
As the largest U.S. corporation by market value at $2.65 trillion, it’s perhaps unsurprising to see Apple Inc.
down roughly the same as the rest of the stock market year-to-date. After all, as of this writing AAPL stock represents about 7% of the entire S&P 500 and a whopping 12% of the Nasdaq 100, since both of these indexes weight components by size. But let’s not confuse this structural issue of index fund dominance with some kind of big-picture problem for Apple. With about $62 billion in cash on hand and a $100 billion more in annual net operating cash flow, this tech stock has a balance sheet that is unrivaled by any other corporation on the planet — and is certain to withstand whatever short-term volatility we see in 2022.
Second only to Apple, Microsoft Corp.
is no slouch either, with a market cap of “only” $2.2 trillion and the same structural challenge of being overweighted in index funds as a result. Microsoft is also cash-rich, with cash and investments worth $130 billion on top of net operating cash flow of $77 billion last year. Granted, it just dipped into these resources to acquire video game studio Activision Blizzard
for $69 billion. But that will only increase its dominance in this area, while continuing to deliver big in other areas like its traditional enterprise software operations as well as its fast-growing cloud-computing arm, Azure. Microsoft has deep pockets, and a bright future regardless of the day-to-day headlines on Wall Street.
With persistent upward trends in online spending and continued dominance for Amazon.com Inc.
as the go-to merchant for most consumers, it’s hard to imagine any disruption in this tech giant’s business model. Furthermore, Amazon Web Services remains just as popular as the traditional Amazon e-commerce model with roughly a third of global cloud infrastructure spend going to AMZN. Furthermore, it’s telling that new CEO Andy Jassy who took the top job in July was previously running AWS — a sign that this fast-growing, higher-margin arm of the business is what will lead Amazon into the future. That’s a strategy investors can take to the bank, and one that’s likely to pay off no matter what the news cycle brings.
When it comes to online advertising, there’s simply no better option for most companies than Google parent Alphabet Inc.
And with more dollars coming into digital ad spend each year even as this tech giant continues its dominance, it is pretty much a sure thing that Google is going to keep raking in the cash regardless of macroeconomic trends. Specifically, Alphabet is on track to log a 17% increase in revenue this fiscal year of more than $300 billion, with another 15% growth in fiscal 2023. Particularly with Facebook parent Meta Platforms Inc.
in the doghouse, both with users and regulators alike, Alphabet is the biggest game in town for digital ad dollars — and will continue to dominate for the foreseeable future.
Jeff Reeves is a MarketWatch columnist. He doesn’t own any of the funds or stocks mentioned in this article.